PARAMOUNT POWDERS (U.K.) LIMITED v TARLOCHAN SINGH BADYAL & Ors

This was a first instance decision on two applications to strike out a claim as an abuse of process pursuant to CPR Part 3, r. 3.4(2)(b). The Claimant, Paramount Powders (U.K.) Ltd (PPUK), sought damages, an account of profits and/or equitable compensation for alleged breaches of fiduciary duty by a former director (TSB), and claims for dishonest assistance and unlawful means conspiracy against TSB's son and Trident. The principal legal principles applied were the Henderson v Henderson doctrine and the modern, broad merits-based approach in Johnson v Gore Wood, together with the so‑called "Aldi guidelines" on raising later claims in ongoing multi-party litigation.

The court found that although PPUK could, procedurally, have sought to bring its company claims in the earlier unfair prejudice/partnership litigation, and the Aldi guidelines had not been complied with, that did not make PPUK's present claim necessarily abusive. The judge applied a balancing, merits-based assessment: the defendants bore the burden of proving abuse; there was significant factual overlap but not total identity of issues; PPUK had rational reasons (including undertakings and funding constraints) for not pursuing the company claim in the earlier proceedings; and there was insufficient evidence that allowing the claim would constitute unjust harassment or cause unacceptable prejudice to Trident. The applications to strike out were dismissed.

Background and parties:

• PPUK (the claimant) sued its former director, Tarlochan Singh Badyal (TSB), his son Sandeep Badyal and Trident Powders Limited for breaches of fiduciary duty, dishonest assistance and unlawful means conspiracy arising from the establishment and conduct of Trident as a competitor.
• Prior proceedings: TSB had earlier commenced proceedings (a partnership claim and an unfair prejudice petition under ss. 994–996 Companies Act 2006) in which PPUK was a nominal party and Henry Carr J (the "Carr Judgment") found that TSB had been involved in Trident, that his removal as director was justified, and refused relief under section 994. TSB’s appeal to the Court of Appeal was dismissed.
• Procedural posture: Two defendants (TSB and Trident) applied to strike out PPUK's later claim as an abuse of process under CPR Part 3, r. 3.4(2)(b) before any defences were served.

Relief sought: PPUK sought damages, alternatively an account of profits and/or equitable compensation for breaches of fiduciary duty, dishonest assistance and unlawful means conspiracy.

Issues before the court:

1. Whether the present claim was an abuse of process because the matters could and should have been raised in the earlier Company/Partnership proceedings (Henderson v Henderson principle and Johnson v Gore Wood guidance);
2. What weight to give to the failure to follow the "Aldi guidelines" (putting the court and other parties on notice of possible later claims) and whether that failure required striking out;
3. Whether PPUK’s reasons for not bringing the company claim earlier (including undertakings restricting PPUK's expenditure and funding difficulties) justified permitting the later claim;
4. Whether allowing the claim would constitute unjust harassment of TSB or undue prejudice to Trident, including the risk of inconsistent judgments.

Court's reasoning (concise):

• The appropriate test is a broad merits-based assessment: the defendants bear the burden of proving abuse.
• Although there was substantial factual overlap, the overlap was not total; PPUK’s claim for quantification of loss and proprietary remedies had not been adjudicated.
• PPUK had rational commercial reasons for not pursuing company claims in the earlier shareholder litigation: the undertakings (sought by TSB) limiting PPUK's use of funds, the practical difficulties and likely opposition, and genuine funding constraints.
• Non-compliance with the Aldi guidelines did not automatically require striking out; the court would likely, on the facts then known, have declined to order PPUK to bring the claim in the earlier proceedings.
• There was insufficient evidence that permitting the claim would amount to unjust harassment of TSB or that Trident would suffer unfair prejudice; risk of differing outcomes between proceedings does not by itself make the later claim abusive.

Disposition: The court dismissed both strike out applications and declined to strike out PPUK's claim. The judge reserved consequential orders for later hearing.

The applications by the First Defendant (TSB) and the Third Defendant (Trident) to strike out the claimant's claim as an abuse of process are dismissed. The court applied the Henderson v Henderson principle and the Johnson v Gore Wood broad merits-based approach, concluded that non-compliance with the Aldi guidelines did not make the later claim automatically abusive, accepted PPUK had legitimate reasons for not bringing the company claims earlier (including restrictive undertakings and funding constraints), found that the defendants had not shown unjust harassment or sufficient prejudice, and therefore refused to strike out the claim.